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Flaherty holds hammer

By Dana FlavelleRita TrichurBUSINESS REPORTERS

Fri., Nov. 20, 2009

Federal Finance Minister Jim Flaherty warned card companies and banks if they don't comply with a proposed voluntary code of conduct for the multibillion-dollar credit and debit markets he would bring down the hammer of regulation.

The code, which was designed to address merchants' claims they're being gouged, won high praise from retailers and small business owners but drew more cautious response from credit card companies and banks.

While critics worry that a voluntary code would not be enforceable, Flaherty said Thursday he would not hesitate to get tough.

"If we are unsuccessful ... with the voluntary code, then we can create an involuntary code," Flaherty said in Ottawa. "We have that power to do that.

"But we'd rather do it in concert with the important stakeholders and arrive at a conclusion that will work for everybody rather than use the heavy hand of regulation. But if we have to, we would, of course."

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The long-awaited code contains proposals that would give merchants more clout in dealing with global credit card giants, payment processors and big banks over card fees.

The Retail Council of Canada estimates such fees cost $4.5 billion a year and lead to higher prices for consumers.

Among other things, the code would give merchants the ability to cancel contracts without penalty following notification of a fee change, to offer a variety of discounts for different payment options – and control how debit transactions are processed. Additionally, banks could only issue premium credit cards to consumers on consent or request.

"This is the first time the card companies, the banks and their processors are going to have to compete for the merchants' business. We're no longer the milk cows. We're the customer," said Diane Brisebois, president of the Retail Council of Canada.

However, critics say Flaherty missed an opportunity to go further by making the code mandatory and they're worried the measures could get watered down during the 60-day public consultation period.

Liberal Senator Pierrette Ringuette said without enforcement, fines or penalties, Visa and MasterCard will be able to cherry-pick which measures to follow. "`Pretty please,' will not make them abide," Ringuette said.

Liberal MP Dan McTeague said many merchants wouldn't be able to opt out of their contracts for fear of losing customers. He was also disappointed consumers were not given the same opportunity to cancel their card contracts without penalty.

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MP Glenn Thibeault, the NDP's consumer protection critic, agreed that consumers have no one to complain to if provisions of the code are breached. "With this government, big business is the one that ends up always being on the winning end of any type of voluntary code of conduct."

Credit card companies expressed concern about the impact of the code on market competition.

This "should resolve a commercial dispute for which the global retail lobby operating in Canada has sought government intervention over private negotiation," said Kevin Stanton, president of MasterCard Canada. In particular, he noted the code "could alter the competitive landscape."

Visa said it was "disappointed that the code would allow merchants to supersede consumer choice at the point of sale," adding the announcement "significantly undermines" the introduction of competition in debit.

The proposed code could mean Visa's new chip card readers, which accept its debit cards, may have to be reprogrammed and 2.5 million Bank of Montreal MasterCard Maestro debit cards already on the market may have to be reissued, a source said. It was not immediately clear who would bear those costs.

The Canadian Federation of Independent Business, which had lobbied for a voluntary code, called it "an early Christmas present."

The Interac Association welcomed the code but said it would work with government to "fill in" the details.

The Canadian Bankers Association said most of the measures don't apply to banks. Still, it cautioned "customers are best served by an open, competitive marketplace."

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